Many smartphone owners are frustrated with the high prices they pay to wireless service providers, as well as the treatment they get from providers once they’re locked into a two-year service contract. Americans have limited choices in mobile broadband devices and services, and mobile operators in the United States currently enjoy relative freedom from regulation.
Because of those two conditions and in light of the billions of dollars that U.S. consumers spend on wireless devices and services, a bill of rights is necessary to protect consumers against mistreatment by service providers. Following are the standards, safeguards and solutions that we’d like to see.
1. Smartphone owners should pay for wireless services by the bit, not by the minute or by the message.
These days, voice, data, and messaging all travel the same way–as bits of data–over the wireless operator’s network. Therefore, charges for all of those services should be based on the same thing, by “bits of data transferred.”
Using that standard would help consumers in two ways. First, it would create a real relationship between the actual work (moving bits) the mobile provider does to deliver the service, and the price it charges. Second, with charges made on the same basis, consumers would have a way to make genuine apples-to-apples comparisons between the costs of voice, data, and messaging services, and ask questions about any pricing disparities.
Currently, providers keep the actual cost of delivering wireless services completely hidden from subscribers, and that cost has no bearing whatsoever on pricing. The classic example is text messaging: The provider incurs almost no cost to deliver texts, yet charges customers 20 cents per message, or $20 per month for an unlimited messaging plan. Consequently, text messaging has become a $100 billion business–larger than the music, movie, and game industries combined.
Service providers should be required to offer a pay-as-you-go messaging plan wherein customers pay based on the amount of bandwidth they use to send messages, not on the number of messages they send. Also, the cost of SMS fees should not increase more than 1 percent in any given year.
Under the bits approach, mobile operators would be free to sell services at whatever prices they chose, and in whatever bundles they wished–as long as they disclosed exactly how much a consumer would pay, per bit of data transferred, for each service.
2. Smartphone buyers should be protected against abusive charges when they exceed service-plan limits.
In any limited-usage service plan, consumers shouldn’t be charged more than 150 percent of the normal per-bit-transferred price of any service (voice, text messaging, or Internet access) after they’ve exceeded that service’s plan limit.
For example, if a customer signed up for a data plan priced at $1 per megabyte of data transferred for the first 500MB, the carrier could charge the customer a maximum of $1.50 for each megabyte used beyond 500MB.
The same rule would apply to minutes-per-month or messages-per-month service plans. The 501st message in a 500-messages-per-month plan could not cost more than 150 percent of the 500th message, and so on.
3. Smartphone owners should not be held hostage in an unsatisfactory contract by the threat of excessive early-termination penalties.
Smartphone users should not be charged more than 7.5 percent of the total contract period cost of ownership (this includes both the cost of the device and the wireless service) if they choose to terminate their contract early.
4. Smartphone owners should be able to access any legal Internet site or service via the network; the service provider should not block or hinder the flow of packets from any site or service for any reason.
Carriers should not be able to “manage” the amount of wireless bandwidth that customers use by throttling the flow of packets from any specific, legal type of Website, Web application, or Web service.
5. Smartphone users should pay only for the bits of information they actively send or request over the network.
Wireless customers should not be charged for passively receiving a one-way communication, either from another wireless subscriber, from a landline, or from the operator itself. Only when the recipient of the communication decides to respond–when packets containing the customer’s voice or data transmit back across the network–should the carrier charge the customer for network usage.
As such, passively receiving a voicemail message or text message from another party would not incur a charge, nor would listening to automated messages from the carrier’s IVR system, such as voicemail instructions.
6. Smartphone buyers are entitled to certain disclosure information about the wireless device and its coverage at the time of sale.
Similar to the way automakers must show city and highway miles-per-gallon information to car buyers at the point of sale, wireless service providers would be required to show smartphone buyers a detailed local-coverage map that includes the average speed and reliability information, as well as the locations of local cell towers. The buyer should also be advised of the reach, speed and reliability of the carrier’s roaming network, and the costs of using it.
7. Smartphone buyers have a right to know the total cost of ownership of services and devices over the entire term of their contract.
Service providers could still sell smartphones and wireless services in any bundle they see fit, but they should inform the consumer of the monthly cost of ownership for the whole bundle, both for the entire term of the contract and on a monthly basis. This estimate should include all one-time or monthly administrative charges, taxes, and other fees. Like this.
8. Smartphone buyers should be guaranteed a 15-day try-out period.
The speed and reliability of wireless service is subject to many natural and man-made conditions. Because neither a service provider nor a smartphone buyer can easily predict service quality in specific areas, the customer should have ample opportunity to test the connection in real-world conditions at home, at work, in transit, and in other situations. If the wireless service proves less than adequate, the consumer should have the right to return the device and exit the service contract at no cost and with no questions asked; specifically, the consumer should pay only network-usage charges and applicable taxes and fees, but no account activation or termination charges.
9. Smartphone owners are entitled to simple and transparent billing practices.
Service providers should undergo a process to make monthly device and service charges easy to understand. Providers ought to include any fees (collected for themselves) in the base cost of the services, instead of breaking them out into separate, additional charges. Taxes and fees that providers are required to collect for third parties should be itemized and explained on a separate page of the bill.
If a provider adds any taxes or fees to the account later, it should notify the customer in writing at least 30 days before billing the new fee. The notification must include a full explanation of the charge, the reason it is necessary, and what it will pay for.
10. Smartphone owners should get access to a device-neutral online storage space for their contact data.
Consumers should never be prevented from walking away from a service they don’t like just because their contact data would be lost if they did so.
Why Is Regulation Appropriate?
Wireless networks were built in part from public money, in the form of tax breaks and subsidies: Wireless companies often hold that they should be unregulated because they built the networks and have a right to charge what they please for the services they deliver over them. In truth, those networks are partially owned by taxpayers; thus, our lawmakers are duty-bound to protect the interests of smartphone customers.
The airwaves that service providers license from the government to carry their services are publicly owned: Since the 1990s the major wireless carriers have paid billions of dollars for the right to license the wireless spectrum over which they send their signals. The service providers do not own that spectrum; the airwaves are required by law to be public property, their use overseen and regulated by the FCC.
The wireless industry does not have enough competition to create a de facto regulatory force: In the United States we have four major, national wireless providers and a large group of smaller, regional providers. In most parts of the country, prospective smartphone owners have but a handful of providers to choose from.
In other markets where many providers compete for business, individual companies have less opportunity to impose unfair prices or practices on customers. If they did, competing companies would steal customers by offering a better deal and better treatment. In this way the competitive market regulates itself. In the U.S. wireless market, that sort of environment doesn’t exist–instead, it’s an oligopoly. Competition is not able to regulate the market, so a third party must step in to protect consumers from the collusion of the few wireless carriers.
We’ve already seen clear examples of such collusion.
Example #1: Over the past two years, the major U.S. wireless companies moved together to double the price of text messages to 20 cents.
Example #2: The two-year cost of ownership for the leading smartphones in the United States is set, regardless of the carrier, to about the same amount ($150 per month). When competition is limited, it’s in all of the carriers’ interest to keep smartphone cost of ownership high.
Without regulation, more examples of this anticompetitive behavior may appear in the future.
The United States is one of the top three most expensive countries for wireless service in the world (along with Canada and Spain), according to a survey from the Organization for Economic Cooperation and Development. Americans pay an average of $635.85 per year for cell phone service, the study shows, compared with $131.44 per year in the Netherlands.
Profits from the sales of wireless services are a bright spot on the balance sheets of large telecom companies such as AT&T and Verizon. Yet while wireless profits are rising, public records show that those companies’ investment in their wireless networks has been declining as a percentage of revenue. Meanwhile, demand for wireless broadband service is exploding.
In the absence of either strong competition or active regulation, the smartphone owner loses, and will continue to lose. It’s time for some common sense. Send this story to your congressperson; ask him or her to copy and paste it into a bill and introduce it.